We are sorry to report in her first budget presentation last week, Governor Whitmer proposed a 41% tax increase on small businesses known as “pass-throughs” to pay for an unfair tax break for retired government employees.
A pass-through is a business that does not pay corporate income tax, and includes entities like sole proprietorships, partnerships, and S-corporations. The term “pass-through” is used because profits from the business are passed through to the owners of the business. Owners then report that income on their individual tax returns and pay tax on it, along with the rest of their normal income.
The proposal, which does not include sole-proprietorships, would increase the current 4.25% tax pass-through’s pay to 6%, resulting in an overall tax increase of $280 million. Pass-through businesses subjected to the tax increase would receive a 4.25% credit on their individual income tax to avoid double taxation.
The Governor’s office contends that the overall tax increase of $280 million will be partially offset by federal tax savings; however, the administration’s fuzzy math on this overture should be met with a high level of skepticism. Taxpayer’s should also be aware that the magic pot of money at the end of the federal government rainbow simply does not exist.
In addition to increasing the tax burden on Michigan’s small and medium-sized businesses to pay for rich government pensions, this proposal complicates our tax code immensely. Michigan finally became a top 10 state for business tax attractiveness. Any policy changes to diminish this accomplishment would be unwise.
The Michigan Chamber strongly opposes this tax increase and will work to cut any momentum it attains quicker than the time it would take to reach for your wallet.
For more information on this proposal, please contact Dan Papineau at dpapineau@michamber.com.
View FY 2020 Executive Budget Recommendation re: Pass-Through Tax Parity